What is IRS Tax Form 8889?

3 min read • January 09, 2019

30 sec brief

HSA IRA Tax Form 8889 covers your contributions, deductions, and distributions. All details included so you can get and stay IRS compliant.

Tax Form 8889

If you’re like most people, tax season is stressful. You may be eager to make sure you don’t owe money or are hopeful for a small return. The air of uncertainty can be nerve-wracking until the filing is complete.

Before kicking things off, it’s critical to get organized with the necessary paperwork. Some accounts — like a health savings account (HSA) — need a few extra forms. Because HSAs offer special tax benefits, these forms track and report your activity. Today, we’re diving into Form 8889 and how it saves you money.

Health Savings Account Basics

If you have a high-deductible health plan, you may be eligible for a special type of savings account. HSAs offer a few different tax benefits. These perks can ease the strain of your health plan’s higher out-of-pocket expenses.

As long as your insurance plan is eligible, you can take a tax deduction for your contributions. It’s possible to invest the money in your HSA and grow it tax-free. The funds rollover every year, so you may collect a large amount of money over time. When you’re ready to use it, you can withdraw the money tax-free — as long as it’s for qualified medical expenses.

Filing Tax Form 8889

Now that you understand how HSAs work, we will take a closer look at the most important tax form. Form 8889 covers your contributions, deductions, and distributions. When filing taxes, you need to include this form when:

Your employer contributed to your HSA

You contributed to your HSA

You withdrew money from your HSA

You contributed too much money to your HSA

You didn’t keep your high-deductible health plan long enough

It’s not possible to complete Form 8889 without paperwork from your HSA provider and employer. Form 5489-SA and Form 1099-SA come from your provider and your employer sends your W-2. These forms include your contributions and withdrawals. They will also determine if you owe extra income taxes or penalties. You can do the math for both of these on Form 8889.

Can I take a deduction?

When you sit down to do your taxes, your number one concern may be finding ways to pay less. Deductions can slash your tax bill by reducing your taxable income. One of the perks of your HSA is you can deduct contributions. To qualify, you must have an HSA-eligible health plan and stay within the annual contribution limit.

Before diving into your plan, you need a copy of Form 5498-SA from your HSA provider. Box 2 shows your total contributions for the year. You can add this number to Form 8889 and then subtract it from your income on Form 1040.

Why qualified medical expenses matter

When it’s time to crunch the numbers, you may be unsure about your HSA withdrawals. It’s easy to get confused by which expenses qualify. Luckily, the IRS has a publication devoted to this topic. If you’re still not sure which expenses are allowed, it’s a good idea to speak with a tax professional.

A little bit of extra work is better than a transaction you can’t reverse. If you withdraw money for non-qualified expenses, you need to list them on the second part of Form 8889. A basic calculation shows why this is a big deal.

Start by listing your total withdrawals for the year on line 14a. Line 15 gives you the opportunity to subtract your total qualified medical expenses. The balance on line 16 is taxable income. Then, on line 17b, your taxable income is also subject to a 20 percent penalty. You can avoid these extra taxes by always making sure your withdrawals are qualified medical expenses.

Don’t ignore Form 8889

When it’s time to file your taxes, it’s easy to feel overwhelmed by all the forms to keep track of. Form 8889 is like a report card for your HSA. By following the contribution rules, you can take a deduction. And if your withdrawals meet the guidelines, you won’t pay extra income tax or penalties.